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Farewell 2019, Hello 2020


Farewell 2019, Hello 2020

After recording an excellent performance in the June 2019 half-year, both the US Nasdaq and S&P 500 led the way in the December 2019 half-year with a return of 12.1 per cent and 9.8 per cent, respectively, for a return over calendar 2019 of 35.2 per cent (US Nasdaq) and 28.9 per cent (S&P 500).  And this excludes dividends.

Other markets worth highlighting over calendar 2019 included the New Zealand NZ50 Gross (+30.4%), the French CAC 40 (+26.4%) and the German DAX 30 (+25.5%).  The laggards for the year included the Hong Kong Hang Seng (+9.1%) and the British FTSE 100 (+12.1%).

After recording a return of 17.3 per cent in the June 2019 half-year, the Australian All Ordinaries Index was relatively stable in the December 2019 half-year (+1.5%), thus delivering a return of 19.1 per cent (to 6,802 points) over calendar 2019.

It is interesting to note the Australian All Ordinaries Index hit 6,850 points in November 2007, and so many investors have received the equivalent of a dividend return over the past twelve years.  Inclusive of dividends, the Australian All Ordinaries Accumulation Index delivered a return of 24.0 per cent in calendar 2019, neatly more than double its very long-term average annual return.

A big influence on markets was the continuing decline in interest rates. After hitting 3.24 per cent in October 2018, US ten-year treasury bonds rallied to 1.45 per cent in September 2019, before finishing the year at 1.92 per cent. Ten Year Government Bonds in Japan (-0.01%), Germany (-0.19%), the Netherlands (-0.05%) and Switzerland (-0.47%) remained in negative territory.

In recent months the global pool of negative yielding debt has fallen from US$18 trillion to US$11 trillion. That said, a recent study by Bain has identified two dozen European Banks selling at a Price to Book of around 0.6X or below, indicating they have failed to materially de-risk over the past decade.  Deutsche Bank (0.39X), Commerzbank (0.45X), Barclays PLC (0.48X), Royal Bank of Scotland Group PLC (0.57X), Standard Chartered PLC (0.60X) and Societe Generale (0.61X), for example, have combined total assets of US$7 trillion.

In Australia, ten-year government bond yields rallied from 2.32 per cent to 1.37 per cent, and together with the cash rate being cut from 1.5 per cent to 0.75 per cent households have been strongly incentivised to go up the “risk curve” by switching from being savers to borrowers.

The easy monetary policy pursued by the Reserve Bank of Australia (RBA) has assisted the boom in house prices (and “zombie companies”) and has been harmful to “prudent savers.” The slump in the return on short-term deposits and bonds – the low risk component of most portfolios – has meant many older Australians are being forced to either reduce their spending or to consider eating into their capital.

On the commodities front, the price of oil (+35% to US$61/bbl.), iron-ore (+28% to US$91.50/tonne) and gold (+19% to US$1,523/oz) all did well over the year.

Meanwhile, the Australian Dollar was relatively steady for calendar 2019.

31-Dec 30-Jun 31-Dec 6 months to 6 months to 12 months to
2018 2019 2019 30-Jun-19 31-Dec-19 31-Dec-19
      % Change % Change % Change
All Ordinaries 5709.4 6699.2 6802.4 17.3% 1.5% 19.1%
S&P 500 2506.9 2941.8 3230.8 17.3% 9.8% 28.9%
Nasdaq 6635.3 8006.2 8972.6 20.7% 12.1% 35.2%
Nikkei 225 20014.8 21275.9 23656.6 6.3% 11.2% 18.2%
FTSE 100 6728.1 7425.6 7542.4 10.4% 1.6% 12.1%
Dax 30 10559.0 12398.8 13249.0 17.4% 6.9% 25.5%
CAC 40 4730.7 5539.0 5978.1 17.1% 7.9% 26.4%
Shanghai Composite 2493.9 2978.9 3050.1 19.4% 2.4% 22.3%
Hang Seng 25845.7 28542.6 28198.8 10.4% -1.2% 9.1%
Sensex (India) 36068.3 39394.6 41330.1 9.2% 4.9% 14.6%
NZ50 Gross 8811.3 10501.1 11491.9 19.2% 9.4% 30.4%
US 10 Year Bonds 2.68% 2.01% 1.92% -0.67% -0.09% -0.76%
German 10 Year Bunds 0.24% -0.33% -0.19% -0.57% 0.14% -0.43%
UK 10 Year Gilts 1.28% 0.83% 0.82% -0.45% -0.01% -0.46%
Japan 10 Year Bonds 0.00% -0.16% -0.01% -0.16% 0.15% -0.01%
Australian 10 Year Bonds 2.32% 1.32% 1.37% -1.00% 0.05% -0.95%
Australian 11am Call 1.50% 1.25% 0.75% -0.25% -0.50% -0.75%
Gold (US$/oz) 1281.3 1409.6 1523.1 10.0% 8.1% 18.9%
Oil (US$/bbl) 45.41 58.47 61.06 28.8% 4.4% 34.5%
Iron-ore (US$/tonne) 71.3 109.2 91.53 53.2% -16.2% 28.4%
Copper (US$/lb) 2.63 2.71 2.80 3.0% 3.3% 6.5%
Wheat (US$/bushel) 5.03 5.47 5.59 8.7% 2.2% 11.1%
$US/$A 0.71 0.70 0.70 -1.4% 0.0% -1.4%
$A/GBP 1.81 1.82 1.89 0.6% 3.8% 4.4%
$A/EUR 1.63 1.61 1.59 -1.2% -1.2% -2.5%
Yen/$A 77.55 75.76 78.34 -2.3% 3.4% 1.0%

Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Hi John, it is complicated as any thesis completely depends on the specific time-frame under review. The big negative in calendar 2008 (-40%) means the twelve year analysis is relatively subdued. However in the five calendar years prior to that (2003-2007), the average annual return was also about double the very long-term average.
    Over the seven years from 1/1/13 to 31/12/19, for example, the ASX 300 Accumulation Index, which assumes reinvestment of dividends, has delivered a 10.0% annual average return, which is very close to the very long-term average. Also, the 2010-2019 decade only had two negative calendar years (2011 and 2018) and these were relatively minor.
    So the big negative in 2008 (-40%) can throw any thesis around.

    • Ok David,

      As a wild guess I am in the 3% return per year average over next decade camp (too many worrying signals are arising). If that is the case value investors would be better placed than most.

  2. Does anyone know where Skaffold now known as ShareAnalysis has gone? I haven’t been able to access this for a while now.
    Does Montgomery’s still own it?

    • Hi Helen,

      I sold Skaffold in 2016, it then rebranded to Shareanalysis at some point.

      We don’t have a relationship with the company (Mainstreet) that owns the platform now to understand what is happening.

      I am sorry we can’t help you here, but we are not involved and we don’t have any further information.

      All the best.

    • ShareAnalysis have been experiencing server issues. I understand that this could be resolved soon and could be back on line in about one week.

  3. “It is interesting to note the Australian All Ordinaries Index hit 6,850 points in November 2007, and so many investors have received the equivalent of a dividend return over the past twelve years. Inclusive of dividends, the Australian All Ordinaries Accumulation Index delivered a return of 24.0 per cent in calendar 2019, neatly more than double its very long-term average annual return.”

    David – This poses the question whether we really have recovered from the GFC or whether the same underlying problem remains. If the underlying problem remains – after the latest exuberance – from here on in the market will remain stagnant and been bouncing around as repeated stimulus policy attempts to revive what is a very ill patient – repeated blood letting cannot solve this problem.

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